IRS TAX TIPS: TAX FACTS ABOUT CAPITAL GAINS
AND LOSSES

Almost everything you own and use for
personal purposes, pleasure or investment is a capital asset. When you
sell a capital asset, the difference between the amounts you sell it for
and your basis, which is usually what you paid for it, is a capital gain
or a capital loss. While you must report all capital gains, you may deduct
only capital losses on investment property, not personal
property.

Here are a few tax facts about capital gains and
losses:Capital gains and losses are reported on Schedule D, Capital Gains
and Losses, and then transferred to line 13 of Form 1040.
Capital
gains and losses are classified as long-term or short-term, depending on
how long you hold the property before you sell it. If you hold it more
than one year, your capital gain or loss is long-term. If you hold it one
year or less, your capital gain or loss is short-term.
Net capital
gain is the amount by which your net long-term capital gain is more than
your net short-term capital loss.
The tax rates that apply to net
capital gain are generally lower than the tax rates that apply to other
income and are called the maximum capital gains rates. For 2006, the
maximum capital gains rates are 5%, 15%, 25% or 28%.
If your capital
losses exceed your capital gains, the excess is subtracted from other
income on your tax return, up to an annual limit of $3,000 ($1,500 if you
are married filing separately).
For more information about reporting
capital gains and losses, get Publication 17, Your Federal Income Tax, and
Publication 550, Investment Income and Expenses, available on the IRS Web
site at IRS.gov or by calling 800-TAX-FORM
(800-829-3676).

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